Rule 14a-4 of the proxy rules prohibits the bundling of shareholder proposals. 17 CFR 240.14a-4. The provision was added to the rule in 1992, replacing explicit language that allowed issuers to "group" proposals. See Exchange Act Release No. 31326 (Oct. 16, 1992).
The provision was recently at the center of litigation involving Apple and the its decision to group a number of amendments to the articles into the same proposal. A court found that amendments had been improperly bundled and prohibited Apple from "accepting proxy votes cast in connection with" the proposal. The opinion and briefs in the case can be found here.
The staff of the Commission hasn't provided much guidance on this provision. What little exists, however, is arguably inconsistent. Some suggests that bundling is permissible for "immaterial" matters. See Rule 14a-4(a)(3), Division of Corporation Finance: Manual of Publicly Available, Telephone Interpretations, Sept. 2004 ("Unless the company whose shareholders are voting on a merger or acquisition transaction determines that the affected provisions in question are immaterial, those provisions should be set out as separate proposals apart from the merger or acquisition transaction.").
On the other hand, the Commission has issued advice that permits the grouping of proposals without referencing a materiality requirement. See Exchange Act Release No. 7032 (Nov. 22, 1993) (“Companies have asked whether in the case of shareholder approval of amendments to an existing compensation plan, the ‘separate matter’ referred to in Rule 14a–4 applies to each amendment to the plan or only the plan as amended. Registrants have been advised that it is appropriate to provide for a single vote on the plan, as amended, rather than a vote on each amendment in a given plan.”).
In the aftermath of the Apple litigation, a number of cases were filed alleging improper bundling. Groupon found itself involved in one such suit. The complaint is here. Other pleadings (including motions seeking attorneys fees) are here. The case did not involve an amendment to the articles but an amendment to the company's incentive plan. As the complaint stated:
- As stated in the Proxy, Proposal No. 4 seeks: "[t]he approval of the amendment to the Groupon, Inc. 2011 Incentive Plan to increase the number of authorized shares and to increase the individual limit on annual share awards." See Ex. A, p. 1. And as stated in the Proxy Card, Proposal No. 4 seeks "[t]o approve the amendment to the Groupon, Inc. 2011 Incentive Plan to increase the number of shares available under the plan and to increase the individual limit on annual share awards." See Ex. A, Proxy Card.
The complaint asserted that "[p]laintiffs and Groupon's other shareholders can only vote for both of the proposed amendments, or against both of the proposed amendments" and that this constituted a violation of the anti-bundling requirements.
The case settled and therefore was not resolved by a court. Other suits in this area have likewise involved compensation or incentive plans. This suggests a need on the part of the staff of the Commission to provide guidance in the area. The staff should indicate the types of changes that need to be addressed separately. At a minimum, this should include an obligation to give a separate vote on amendments that are material.